Exhibit 21-1
To benefit from the low correlation between the Trinidad dollar and the Japanese yen (¥), Sciorra Corporation decides to invest 50 percent of total funds invested in Trinidad dollars and the remainder in yen. The domestic yield on a one-year deposit is 8 percent. The Trinidad one-year interest rate is 10 percent, and the Japanese one-year interest rate is 7 percent. Sciorra has determined the following possible percentage changes in the two individual currencies as follows:

-Refer to Exhibit 21-1 above. What is the probability that the yield of the two-currency portfolio is less than the domestic yield?

Question

Exhibit 21-1
To benefit from the low correlation between the Trinidad dollar and the Japanese yen (¥), Sciorra Corporation decides to invest 50 percent of total funds invested in Trinidad dollars and the remainder in yen. The domestic yield on a one-year deposit is 8 percent. The Trinidad one-year interest rate is 10 percent, and the Japanese one-year interest rate is 7 percent. Sciorra has determined the following possible percentage changes in the two individual currencies as follows:
​ 
-Refer to Exhibit 21-1 above. What is the probability that the yield of the two-currency portfolio is less than the domestic yield?​

Quizplus · Accepted Answer

The probability that the yield of the two-currency portfolio is less than the domestic yield is given as 0.1575 in the options.

Exhibit 21-1 To Benefit from the Low Correlation Between the Trinidad Dollar